Spoilers

Behemoths like Exxon and Apple plus ‘smaller’ companies like Qualcomm are the real 1 percent, raking in trillions and widening the gap with individuals and even nations. They must be held accountable.

The 1 percent versus the 99 percent—the haves and the have-nots; the government or the people; China versus the United States. Our conversations today are framed by these splits, yet as compelling as these are, they are each secondary to the yawning gulf that has emerged between large, multinational companies and everything else.

The real 1 percent are the panoply of global corporations that are even now reporting astonishing profits for the first part of 2012, just as they have for nearly every quarter for the past decade—save for a brief blip at the end of 2008 and early 2009. The much-vaunted gap that has emerged in the United States and elsewhere in the world—income inequality is also increasing in countries such as Brazil and China—is a by-product of the much wider gap between companies and all the rest. So stark is the contrast between companies on the one hand and individuals, nations, and various groups on the other, that it would be better to speak of multinationals as inhabiting their own world, with their own rules, mores and rewards, and that world, call it Corporateland, is the undisputed victor in the global game of spoils.

It’s not just the behemoths like Exxon, Apple, Google, IBM, GE, Vale, Petrochina, Siemens, Wal-Mart, Samsung and Disney. It’s a host of smaller (though still quite large) companies that aren’t exactly household names but are still making billions upon billions in profits. Yes, the ones on the first list have market capitalizations in the hundreds of billions and generate revenues that would place each of them in the top 100 nations by GDP. And yes, Apple alone would crack the top 50. But then there are companies such as Qualcomm, State Street, Blackrock, Schlumberger, Potash Corporation, all of which are worth tens of billions of dollars and have profit margins in the double digits. They are generating more cash each year than they can meaningfully and productively spend, and even as they increase the amount they return to shareholders, they are collectively sitting on trillions of dollars of unspent profits. And yes, that trillions is not a typo.

Large companies have always made large profits, but the divide in recent years is so stark because the efflorescence of Corporateland is in such contrast to the general stagnation of many of the countries where they do business. As a number of analysts—including most recently the consultant and former Commerce Department official David Rothkopf, the late Tony Judt, and the political philosopher Michael Sandel—have emphasized, the success of large companies today is more detached from the fortunes of most ordinary people than at any point in decades. It may be that for much of history, the pyramid was steep and stark, but today, the scale is global.

Wealthy individuals, paying taxes or not, generate political heat and headlines in part because it is easier to personalize wealth divides between real people than between nations and corporations. And of course, banks in the past few years, and energy companies periodically, do serve as a lightning rod of popular discontent, as the Occupy Wall Street movement showed. But the issue is just as trenchant for technology companies such as Apple and Google and Microsoft and Oracle, each of which pays its senior executive tens of millions of dollars (at least) and each of which has thrived in a period of time when economic discontent and stagnation has been the rule in the United States, Europe, and Japan.

Of course, many of these companies have been exposed to fast-growing and dynamic economies such as China, India, Brazil, and the rest. But that alone cannot account for the gap.

What does is that, over the past decade-plus, companies have managed to shed costs and increase their sales and profits. Sounds benign and logical, and from the bird’s eye of an individual company operating globally, it is. The problem is that those costs didn’t disappear; they just went somewhere else, and mostly they went to governments.

There is a direct correlation between the increased debts of governments over the past decades and the increased profits of companies. Correlation isn’t causation, and some of the reasons for higher government debt have nothing to do with the behavior of large companies. European governments accumulated a portion of their debts because of promises made to populations for education, health care, and retirement in an earlier demographic era. But as a result of various shifting of both rules and mores, companies have been able to divest themselves of their most significant costs: workers.

For much of the 20th century (but not before), companies carried the burden and responsibility not just of worker salaries but also their health care and pensions. That was a cost they could absorb in a rising economic tide, but even so, it established a lid on profit margins. Now, however, companies have been able to externalize those costs, or to put it more bluntly, they have been able to vastly reduce their commitment to labor. Given that labor expenses have traditionally represented more than two thirds of total costs borne by a company, sharply reducing those costs leads to sharply increased profits. Companies have shed labor costs by using technology, by shifting workforces to less costly venues around the world, and by moving away from guaranteed pensions. In parts of the world, health care remains their responsibility, but in most of the world, retirement, aging, and care are either directly borne by government (Europe, Canada) or left to individuals (China).

If you think about the companies today that are most profitable, almost all of them have relatively sparse workforces relative to sales: Whether that is Facebook with a valuation of $100 billion and a few thousand employees or even a global company such as IBM that has shed tens of thousands of higher-paid workers in the United States and added tens of thousands in India and elsewhere. The exception is state-owned companies in China or Brazil, which still have bloated workforces but have been moving quickly in the direction of the multinational cohort.

These companies have surpassed their mandates and managed to offer their goods and services to ever more people at ever more lower costs. That had been central to the booming new economies around the world. The middle-class emergence of hundreds of millions of people in the past decade is partly due to efficient multinational enterprises offering affordable and plentiful goods and services ranging from appliances to food to clothing, along with intangibles such as entertainment. But the downside has clearly been the fate of hundreds of millions of others caught on the wrong side of history and trapped in an inflection point.

Governments pay the price. Companies can shed workers, but governments cannot shed citizens. Companies can integrate technology to do the work formerly done by people; nations and societies cannot externalize the costs of their young, sick, and elderly. The flourishing of Corporateland has undeniably benefited the emerging world, and it has unquestionably placed pressures on the emerged world.

Corporateland is largely invisible, and in the shadows, it may be doing more harm than it should.

Unfortunately, the knee-jerk solution—to tax their profits as France’s Socialist presidential candidate Francois Hollande proposes—has little effect in a globalized world. Until everywhere is “developed” and “middle class,” companies can keep shuffling the formula of wages, geography, and technology to their advantage. And one government that attempts to reverse that tide is likely to harm only its own domestic economy rather than impede these trends, even the U.S. government. Companies are doing what they do because their structural incentives demand it, not because they are evil or care not at all for the fate of their societies and workers. Until those incentives shift, they will do as they have done, and likely do it very, very well.

Addressing the emergence of Corporateland and beginning to craft global strategies to grapple with it is a challenge not for one government but for all, and it will take time and care, neither of which is in easy evidence. But every prognosis has to start with a clear, steely diagnosis. Corporateland isn’t the enemy, but it is the most important actor in the world today. It is largely invisible, however, and in the shadows, it may be doing more harm than it should. Time to welcome it into the family of nations, and demand that its leaders tend to the global commons.